The Popularization of Entrepreneurship and Customizing Arrangements with Each "Employee"

Ricardo Semler was the first CEO I'd heard of to have half a dozen folks working side by side on a factory floor, each with different arrangements. One might be working for a monthly salary, another hourly, another doing piece work and another renting equipment from Semco (the company founded by Semler's father and later run by Ricardo) to make the product the employee would sell on their own, outside of Semco. Semler may have helped to pioneer something that will become common.

The next big wave is going to be the popularization of entrepreneurship and one element of this will be to make more employees more entrepreneurial. Having multiple arrangements with "employees" is key to this.

One reason flexible arrangements is key to making employees more entrepreneurial is because it forces both sides - management and the employee - to consider and understand the source of revenue and profit. There is no arrangement that you should make that would be bad for either side. But you can't make an intelligent offer or counter-offer without information about where profits come from. Curiously, the typical employee today has no real sense of whether she's a necessary cost or a source of value that generates 90% profit margin.

If you are going to have real and useful deals made for each employee's arrangement, it means that you have a real and clear sense of how the company creates value. That alone suggests clarity that rarely exists or at least is rarely communicated widely.

Then, once you have clarity about the sources of profit and your employees have clarity about what they would most like now - this one wants to work 10 to 12 hour days in order to make as much as possible at this stage of life, this one wants to work only 6 hours a day because their child is in school only that long, this one wants to work on projects that require 10 hour days for months and then take a month or two sabbatical, this one wants to take the risk that what they're doing will payoff handsomely and wants to be paid half in salary now and half in future profits later - you have the basis for profitable deals and custom arrangements.

These custom arrangements do at least two things. One, it gives employees the ability to customize their jobs to fit their lifestyle. Two, it drives every deal towards greater profit, because everyone knows that profit is what funds these deals and gets them approved. If your proposal will generate profit, management can say yes. Timothy Ferris argues for the relentless application of the 80-20 rule, looking for the 20% of your activity that results in 80% of your value. People looking to make arrangements would be continuously looking for ways to add more value in less time, translating the gain into either more time off or more income. This would democratize the drive for profit and would fund autonomy.

It will also do something else that we in the West have done three times before. It will make the institution the tool for the average person.

Between 1300 and 1700 - during the first market economy that we'd call an agricultural economy - the church in the West became a tool for the average person. We got religious freedom and that meant that individuals defined their beliefs and could even found a church to realize that.

Between 1700 and 1900 - during the second, industrial economy - the nation-state became a tool for the average person. Subjects became citizens.

Between 1900 and 2000 - during the third, information economy - the bank became a tool. Average people who could scarcely get a loan in 1900 were regularly throwing away offers for credit by 2000.

Within the next few decades, the corporation will become a tool for employees. And one of the ways that this will play out is through flexible arrangements employees define that give them more autonomy and give them - and the corporation - more profit.

Cubicle-Roots Funding for R&D (One Approach to the Popularization of Entrepreneurship)

I'm once again inside a company working with a team of technical experts who are planning the development of a fairly complex system. Already it looks like senior managers' expectations are out of line with the teams' perception. That's dangerous because senior managers invest the money.

This problem has its roots in organizational design, the allocation of power. Product development is inherently complex and there is no good way for just a few people in positions of power to fully understand what they're investing in. Employees who might blow the whistle on  a key problem that could sink the project may think twice about such honesty if the result is a cancellation of the project and them losing jobs.

Today, senior managers approve a project, agreeing to invest millions to get a new product to the point that they can sell it for profit. But product development is ripe with risk. Technology can fail to work as predicted, forcing management to scrap it. And given that a product is dependent on so many different technologies, it's worth remembering that it takes an unexpected failure in just one technology to drive serious delays, compromises or overruns. Debugging critical software can take longer than planned, resulting in a product offering that is largely obsolete by the time it is released. A key supplier can change terms, driving up costs to the point that the cost of goods sold wipes out projected profits. And, of course, the internal dynamics of the team itself can mask dysfunction until the project blows up.

You can rely on a model in which elites looking down on this complexity judge it. Or you might consider a model that actually depends on the perspective of people who live within this complexity. It's a bit like the difference between reliance on central planning and a reliance on markets.

Readers of my blog and book  know that I'm arguing for the popularization of entrepreneurship. Among other things, this means nudging - in some cases radically shifting - the role of employee to something more akin to entrepreneur. A different model for product development could illustrate what that might look like.

Imagine that rather than having senior managers make funding decisions about which products to pursue, you relied on the wisdom of the crowd. More specifically, had organizations take their lead from employees whose willingness to invest - or not - would signal the new product's potential.

Imagine that anyone in the organization - from a charismatic CEO like Steve Jobs to an introverted programmer or designer - could make presentations to the organization proposing a development project. (And yes, this very process would drive education in NPV education, market analysis, technology risk, etc. To properly support it would lead to more widespread business education for employees.)

Raise your hand above the cubicle if you like this proposal

Imagine that a portion (10%? 33%?) of every employee's 401(k) fund had to be invested in either a fixed interest annuity with low-risk and return (say, 1 or 2% above inflation) or the company's R&D projects.

Imagine further that employees would be able to investigate any potential project that individuals are proposing, able to do due diligence on this investment possibility. Given some portion of their wealth would be a function of the success of these internal projects, they could use personal relationship and company data to determine who had the right personality to lead a team and which technologies had brilliant potential and which had obvious flaws.

Imagine that whenever employees encountered a proposal they were excited about they could invest some portion of their 401(k) internal allotment, taking a stake in its future success.

Imagine that only when employee-led investments hit some critical mass that the company would match (1 to 1? 100 to 1?) employee investments and fund a new project. A business plan might come from a confident project manager who could make a part of the plan a tripling of his salary - or a significant portion of the future value of this new product. Key technical people might be able to propose similar raises or equity-sharing plans. And remember, if the employees strongly disliked any part of the plan, they could simply refuse to invest. A form of negotiation might emerge in the form of iterative proposals that would finally result in a plan that attracted investors.

Imagine that the result would be that R&D funds were more strategically allocated, based on richer and more nuanced understandings than any senior managers might have. And imagine, too, that such proposals would occasionally make certain teams or team members rich. Perhaps even give some intrapreneurs more money than the CEO.

Imagine that such mechanisms would help to popularize entrepreneurship, help to distribute income and wealth more broadly throughout the organization and - at the same time - create more total wealth and income.

Whether it would make employees the equivalent of venture capitalists or make R&D funding more like a kickstarter campaign would likely depend on the culture and specifics of the process. In either case, it would promise a less centralized, more market-driven model than what we have now. That seems to have worked for nation-states where some percentage of the citizens in a developed country are likely to make more than the chief executive. (About 6 million Americans make more than we pay Obama.)  It might be worth trying within the corporation.